Friday, February 26, 2016 11:30 AM /FBNQuest Research
Our chart shows average exchange rates for the naira through to December. The CBN abandoned the Dutch auction system in February 2015 due to perceived abuse, and has this year halted the sale of fx to bureaux de change for the same reason.
A chart updated today would have just the one line, and would not capture the wildly fluctuating parallel market rates cited by the wire services and derived, we assume, from different sources. The widening gap with the bureaux, and now the parallel rate has not moved the monetary authorities.
The IMF yesterday joined the calls for exchange-rate flexibility without mentioning the “D” word (for devaluation). We note that these comments formed a small part of the standard press release on the completion of the annual Article IV mission and were similar to those made on the same occasion in previous years.
The Fund does call for the removal of restrictions on access to fx and for a better functioning interbank fx market. This echoes the reasons given by JP Morgan in September for “delisting” FGN bonds from its indices. The CBN’s response at the time was a half-hearted attempt to deny that such imperfections existed, while being fully aware that they (the restrictions) enabled it to maintain exchange-rate stability.
We cannot see how devaluation will somehow unlock fx supplies on a scale to meet demand. Annualised fx inflows have tumbled by about US$50bn as a result of the slide in the oil price from US$110/b to US$35/b. At the same time, import demand has eased rather than crashed. This is evident from the huge unmet weekly demand for fx at the CBN sales.